“Animal protein trade is facing unprecedented change as we enter the second half of 2018,” said Justin Sherrard, global strategist for animal protein at RaboResearch Food & Agribusiness.
“The US-China trade war is the main cause of this uncertainty, but not the only one,” Sherrard told FeedNavigator. There were also tariffs on US pork imports imposed by Mexico, the fallout of 'operation weak flesh' in Brazil and disease pressures and associated constraints “all contributing to the uncertainty”.
“...Unfortunately, there is no quick fix to the challenges presented by the trade wars,” he said.
The US pork market had taken a significant hit, Sherrard said, because exports to China and Mexico – markets with ongoing trade tensions and newly imposed tariffs – represented 10% of total pork production in 2017. “This is a material share of production that faces more challenging economics. And this at a time when the US pork industry is set to increase total production by some 4% in 2018. What will happen to the additional pork in the US market is a question that is already hanging on markets.”
Should the range of uncertainties, including trade disputes, disease and 'operation weak flesh', continue well into the second half of 2018, he said animal protein could well see a decline in production for many species, particularly pork.
On July 6, China and the US entered into what has now been coined a 'trade war', with president Trump imposing tariffs on $34bn worth of Chinese goods as part of a new policy and China retaliating with similar tariffs on US goods. Both animal protein and feed crop exports have been affected.
On top of this, the global animal protein market was still reeling from the effects of 2017's 'operation weak flesh' in Brazil– a huge governmental crackdown that saw raids on meat processors across the country following a two-year investigation into allegations of bribery around approvals of sub-standard meat.
Feed manufacturers need agility and flexibility
For the feed sector, Sherrard said there were important considerations to take.
“It is no longer adequate to base feed demand forecasts on animal protein production volumes alone. Having secure routes to market, based on long-term mutually valuable partnerships, and being agile in complex and volatile market conditions is also important.
“...Feed manufacturers need agility and flexibility in their distribution models to ensure they can respond to any changes,” he said.
This was also true for others in the supply chain - “all exporters need to invest further in developing relationships with trade partners, including equity-based partnerships and joint investments, as a way of looking through some of the volatility.”
Recovery, Sherrard said, would be about re-balancing supply and demand, which could mean finding alternative export markets and import origins or reducing supply to reflect new demand outlooks – a change that could not be undertaken quickly in beef, pork and some aquaculture species.